When is an early exit smarter than raising another round?

Episode 95 - Oliver Low Transcript Jason Kirby (00:00.242) Hey everyone. Welcome back to today's show. Today I'm very excited to have Oliver Lowe, not just a serial founder who built and sold this company to a strategic and then rolled it up into what became a public company in the London Stock Exchange, but also my partner here at Thunder helping support founders on M&A transactions and helping founders navigate their options when it comes to buy side or sell side M&A. Oliver, thanks for coming on the show today. Oliver (00:29.828) Thanks, Jason. Pleasure to be here. Jason Kirby (00:31.822) And I apologize, it's a bit overdue. I was looking at it man, who should I bring on the show? There's all these amazing people. I was like, I Oliver. I work with you like every day. And we haven't introduced you to the community yet. Oliver (00:41.113) You're right. Oliver (00:44.974) I assumed that the invitation got lost in the mail. Jason Kirby (00:47.502) Yeah, exactly. Just forgotten the fray of the chaos of day-to-day operations of what we do here at Thunder. But, you know, you have a fascinating story and I would love for you to introduce, because not a lot of people will get the full story about you, you know, when we meet with founders. And I think it'd be great for people to have a little bit of an idea of like the company that you build. you know, you Microsoft, you MySpace, but then it really, you built your own company. So that was platform 360. Oliver (00:50.233) Yeah. Oliver (00:54.54) Indeed. Jason Kirby (01:15.896) Kind of walk us through that story and why'd you end up selling it? Oliver (01:20.366) Yeah, I'll sort of skip through the early stages of my career where I actually had a job. It a pretty brief career. I realized pretty quickly that I wasn't really built for the corporate world. in any case, my intention was always to set up a business. Came from an entrepreneurial background and always felt like destiny to start something myself. So I got my chance to do so in 2008. As you said, I'd gone from Microsoft to MySpace, which was the biggest social media company at that time. And 2008, obviously, financial crisis, everything exploded, including MySpace. And that was my ticket to starting a company because we got like at that point, a year's paid severance, which wasn't taxed. So it was like sufficient runway to do something. We built in the first instance an agency. We built an agency because post crash, especially in Europe at that point, there wasn't a lot of capital being deployed. And so we recognized that we would need to bootstrap whatever we built and bootstrapping technology companies back then was hard. It's not like the day where you can vibe code a product in a few hours. It costs like many millions to build a product. So, know, bootstrapping was pretty challenging. We recognized that and it was also sort of the boom time of, you know, what was called digital at that point. you know, much like at the moment where all the companies are trying to build, you know, AI solutions at that point, it was sort of digital and everyone wanted to build websites and apps and all of that good stuff. And we could do that. And so we used our agency as a vehicle to building products because that was always our intention. And I think it was a pretty smart model in hindsight. We were able to deliver projects for like the World Economic Forum and Coca-Cola that were really profitable. And we could have just kicked back and enjoyed those profits ourselves. But we funneled every cent back into essentially building products. We had what we called a lab, which really was sort of an early version of a venture studio where we built products. Oliver (03:41.486) We were able to distribute them ourselves because we had an internal marketing team. so it was actually a pretty neat system. We built an ad tech, you we built a lot of ad tech because that was really the era of ad tech. The internet was obviously booming and advertising being how the internet was and kind of still is monetized. There was just a ton of attention and capital pouring into. to building advertising technology companies. And so, yeah, the first company that we really built as a product business was platform 360. it was essentially, you know, applying machine learning to targeting of advertising, in the first wave of AI and, and for better or worse, we doubled down into that sector of, of, of the world. I say for better or worse, because it was certainly a big wave. you know, in ad tech and generally the advertising industry was growing really quickly at that point. But it was also incredibly competitive and still is, I think, one of the most competitive sectors in the world because you're literally competing with sort of meta and alphabet, et cetera, et cetera. So we kind of recognized that after some time, you know, building platform 360 and sort of recognized that you know, to really go after it, we would need to raise significant capital and spend, you know, many, many more years in that space. And frankly didn't really want to do that. You know, didn't really want to stick around in ad tech and kind of wanted to fairly early on, you know, secure a win in the form of an exit. And so we sought to do that kind of as soon as possible. I'm trying to get the timing right of course it didn't work out as well as often does when you try to time things but nonetheless we secured an exit. To to a sort of bigger strategic player and as you said we with them did a bit of consolidation in our market which is i think you know really good strategy to consider especially in moments of sort of volatility where there are a lot of players that. Oliver (05:59.822) are probably looking for a home. And it's just a very smart inorganic growth play for buyers to be able to consolidate those companies, integrate them, benefit from their revenue, which is the strategy that essentially we deployed post acquisition. We hoovered up some other companies in our space and then took the combined entity public, after which I kind of decided that it was time to end that chapter and move on to the next thing. Jason Kirby (06:30.638) So there's a lot to back on that story, but I want to really focus on the, deal structure. You made the decision to sell, you had your reasons, but when it came to architecting the deal, like, did you guys run a competitive process? Did you bring in bankers? Did you do it yourself? Did they find you? And then what was the deal architecture? How did that conversation. Oliver (06:52.303) Yeah, we brought on advisors. We recognized at that point, despite being quite young and relatively naive in the founders journey, managing that process whilst managing the day to day of running a startup would be really challenging. So we did bring on an advisor to help us through that process. We did run a competitive process as well. There's a sort of... longer story version of this around timing. We sort of engaged in a sell-side process when the EU GDPR regulations came into play. we were 100 % compliant, so we weren't too worried about these regulations coming in. But what we didn't realize is that in the uncertainty of these really broad reaching and quite punitive regulations, a lot of advertisers stopped spending for a number of months. It just so happens that those months coincided with our sell-side process. engaged with a lot of buyers, great conversations. Previous to this, we had really strong growth metrics. Everything was kind going to plan. And then all of a sudden, revenue was falling off a cliff, not just for us, but for everyone. And so we were kind of forced to Jason Kirby (08:02.328) Woof. Oliver (08:18.383) Continue those conversations under duress, which is a really really difficult place to be. Of course, we did have some optionality. We could have, you know, pulled out of that process and, you know, tried to grow the business. But it was a challenging moment to raise capital as well with declining revenues and in a market that was in a lot of short term turmoil. You know, our point of view was this is going to quickly resolve itself. Indeed, it did. You know, that was probably Q2 by Q4. everything had turned around, our revenues rocked back up and the industry was absolutely stable. yeah, we did that in really challenging moment of time. So that of course impacted, you know, the process. In terms of, you know, the specific mechanics of the deal that we did. I learned a lot through that deal. I suppose that was the first deal that I was involved with since then I've been involved with many deals on the buy and the sell side. So, you know, what would I change about that particular deal? Like pretty much everything. I, you know, I won't go into too much detail, but yeah, needless to say, a lot of lessons were kind of learned the hard way. I think one very key thing that I can take from that, maybe pass on to others is just like, you know, earn outs are almost always set up to fail. I estimate anecdotally and through having worked on lots of these that nine out of 10 earnouts fail completely. And the reason is pretty simple. It's that you're asked to hit targets, but you don't actually have control over the levers. And you're suddenly inside a bigger organization or a different company with politics and competing priorities and slower timelines and timelines that you yourself often can't control. So if I were structuring again, I would, you and this is advice that, you know, I often give to founders is like avoid an earn out entirely if you can, or, you know, structure it to be such a small piece of the deal that, you know, whether it fails or not doesn't really matter. You have to assume that, you know, you won't see that money, that component of the deal probably won't arrive or certainly if it does, it's going to be a small fraction of what you originally thought it would be. And we made a lot of the mistakes that... Oliver (10:44.087) I advise founders against today. Jason Kirby (10:47.118) No, I completely agree on the earn out structure, but you know, the, reality of your situation is given the macro market, you know, the duress situation that you were put in, like negotiating, not, you know, non-earn out, you know, not having an earn out is not, you know, not necessarily on the table for, for some companies that are in that state where it's, better take the win and move on. And despite the reality that earn outs might not be great, you know, if you don't have other options, a deal is a deal. Would you agree or would you agree? Okay. Oliver (11:18.511) 100 % totally agree. think, yeah, that's why it's fundamentally important to build a business that gives you optionality. And what I mean by that is ideally a business that's profitable, kicking off a ton of free cashflow. If you have that, you have infinite, you know, optionality. If you have a business that's not profitable, you have two options. One is raise more capital, which, you know, moments like we're in right now can be really tricky. you know, capital is constrained or you sell to a strategic who finds utility in what you've built, but you don't have the best leverage in those deals. So yeah, you often have to pretty much accept what comes your way. Jason Kirby (12:01.39) Yeah. And I just, I see this time and time again, like I have a, you know, another friend who's in a major lawsuit over the earn out and just dealing with the complexity years after selling, you know, he sold years ago, it's still in the lawsuit, like chasing these guys to, you know, make good on, he delivered on his side. They didn't deliver on theirs and there it's cheaper for them to pay the lawyers and drag it out than it is to actually make him whole. Oliver (12:29.42) Yeah. Jason Kirby (12:29.486) Uh, and so that's what will happen indefinitely. And he has to keep spending money, burning money to fight. And so the complexities of earnouts are, let's say, easily, easy to warn against hard to, you know, when you're in the thick of it and making a decision of selling your company hard to really negotiate, build a profitable business that people want to buy and have more options at the table, have a competitive process. Uh, and you'll mitigate the, the strength, the strains of, uh, of an earn out. Oliver (12:46.741) Indeed. Oliver (12:58.348) In an ideal world? Exactly. Jason Kirby (13:01.396) And when you kind of, you know, you're, you, you had this quote on another podcast where you're kind of, you know, selling in the fourth inning, you know, why do you believe that's often a smarter path? So rather than go raise and, know, keep on this like growth trajectory until you either IPO or have a mega nine figure, you know, 10 figure exit, you know, why is it a smarter strategy to sell early, for maybe not your fullest potential? Oliver (13:27.192) Hmm. So I guess first of all, like, I don't think that you should always sell, you know, kind of back to what I was just saying, like if you have a profitable, you know, cashflow generating business with, kind of longterm legs, then, then why would you want to sell that? You know, I think you can, you can continue to run that business, you know, as a someone who's operationally involved, but again, you have tons of optionality. You can step back. You can let someone else run it. You can take on a chairman role, you know, you've got endless optionality seats You may not want to sell that business But if you're running a loss-making business the VC back business that you know, again has limited options then Then in many cases, selling is the kind of smarter lower risk path And that's of course, you know more true in the early stages of your career when you want to secure the wins you want to secure the bag Generate, know some form of financial freedom after which maybe you you know, you think about things differently But yeah in the first instance, I think that You know going after an exit Is is probably you know the smart way back to my earlier point the timing of that is really important I think unfortunately, and I've been in this position myself, when things are going really well, we tend to think they're going to keep going really well forever. So then we're starting to anchor ourselves to this bonanza unicorn outcome, billions of dollars, you're seeing dollar signs galore. And you're not thinking about an exit in those moments. You're thinking like, hell no, why would I sell? I'd be insane to sell. but history tells me that those moments don't usually last forever and that unfortunately a lot of founders will change their thinking about this when, you know, the opposite is true. When the growth has suddenly subsided and they've hit a wall and the markets turned and everyone's selling and valuations are plummeting and then they're like, okay, let's sell. and that's precisely the moment that you don't want to be doing that. Jason Kirby (15:45.71) You you bring up the word anchor and this is something that I, you know, we run into and I run into constantly, uh, founders anchoring their expectations to a certain outcome. And it's often almost nearly impossible to pull them away from where they're anchored on, whether it's valuation or the future potential of their business. Yeah. We're going to be a billionaire bust, know, kind of a perspective. And when I always kind of stopped founders, you know, just meeting them for the first time, or maybe we met before. And I just, I always ask them like, what do you really want? You know, is there a, and like most times founders, you know, their chest like, you know, I want to be a billionaire. Like, do you really like, you know what it takes? Like you got here and you suffered immensely. You will con just cause your business gets bigger. You will, you're going to suffer more. It's going to get harder. Oliver (16:31.213) Yeah. Oliver (16:41.474) Yes. Jason Kirby (16:42.946) Like those are harder, you know, milestones to Eclipse. Like as you move up the revenue chain or user chain, whatever your KPIs are, it just gets harder and harder. And until you create some kind of liquidity, you can't really break free. And if anything were to happen to your entire net worth, your entire value that you've created is tied up into this one entity and then the fade to that entity. And so, you know, this is another founder that we're talking to, it's crushing it, the business. Oliver (17:03.918) Mmm. Jason Kirby (17:11.032) fire, the two X three X a year of a year, but it's in a super unattractive category that no one really cares about. And he's breakeven. He could be profitable, but it's one of those things where I was like, do you really want to try to take this to a mid nine figure exit and grind for the next five, 10 more years to do that? Or do you take 10 million in your pocket today and retain, you know, 50, 60 % of the business for a future upside? Oliver (17:27.981) Yeah. Oliver (17:38.381) Yeah. Jason Kirby (17:38.402) And give yourself, give yourself a little cushion, a little break, and change your perspective. Cause that we found right now. And as we know in the post-exit founder group, you know, the perspectives of people, like you just, you evolve as a leader, as a founder, as a creator, as a builder, when you've had one exit under your belt and the optionality that comes after that is exponential. And so I always try to tell those first time founders that haven't had a win yet. Oliver (17:41.365) Absolutely. Oliver (18:01.356) Absolutely. Jason Kirby (18:07.047) Especially for young, take a win early and then you have so much more options. Oliver (18:09.279) Absolutely. Yeah, the longer you're around, the more you experience this anecdotally. So I think, you know, for people who are, you know, in the mid to late stages of their, their founder career, they kind of understand this inherently, but in the early stages, you don't. And, you know, you have to be a bit insane to be a founder. have to be a bit delusional, you know, to keep going and build through, you know, all of the trials and tribulations, but. you shouldn't lose sight of some semblance of reality. And the chances of achieving a multi-billion dollar exit are unbelievably slim. One of the things I've been doing over the last couple of years is working with a team out of Cornell who've been studying venture creation. And they are amongst the most knowledgeable about this topic in the world. Their data shows that You know, venture backed companies have circa 99 % failure rate over a long enough time horizon. You know, like the big successes that we all know about, they're extremely rare. so, you know, when you're playing that game with the intention of having that kind of big, you know, bonanza outcome, know that it's incredibly unlikely to actually happen. And, you know, there are many ways to play this game. There are many ways to climb a tree. There are lots of different paths that you can take to achieve financial freedom. There are lots of different versions for that. And yeah, I think when people are honest with themselves, they don't really need billions of dollars to get to where they want to be. You know, there is a number and, you know, some people have a very clear view of what that number is and they've worked it out in terms of what that will achieve for them over a number of years. I don't know if you have to be that scientific about it, but I think you know, the more realistic you are about, you know, what the outcome is that you want to achieve, the higher the odds are that you'll probably achieve it. Jason Kirby (20:15.682) Yeah. It's just an important conversation for founders to reflect on. You know, when you built this, you know, this company has value. you know, when, when do you cash in either, at least just a little bit, you know, and, know, obviously you got to build a business is worth buying or investing into. That's I think priority number one, but once you do that, when you are on the top and everything's going up into the right, just take a little bit off the top, give yourself a little bit more optionality, a little bit more protection, take bigger risk, you know, cushion. Oliver (20:40.045) Absolutely. Oliver (20:43.979) Yes. Jason Kirby (20:45.698) You know, that, allows it. think that's one thing that people don't realize. Like, it's like, if you get a little bit off the table, you can actually take bigger risk. And I think founders think counterintuitively that they're like, no, I have to go all in on the business and that's gotta be everything. but I think there's just a different mind shift change that happens when you have a, you know, a much bigger bank balance, at home and you can have a little bit more optionality and feel a little bit more comfortable with the decisions you make. Cause you're not. betting the farm on everything, every single thing you do at the business. So let's kind of switch gears a little bit and talk about, you know, the deal dynamics that we're seeing in 2025 and what we kind of project out in 2026. You know, both of us having sold companies been, you know, in the founder's shoes ourselves, but also now advising countless founders on, you know, their future transactions and past transactions. Like what's your take on. Oliver (21:18.509) Absolutely, absolutely. Jason Kirby (21:42.606) with the rest of 2025 and 2026 for the M&A market. Oliver (21:46.414) It's an interesting time in M&A. I think the game is definitely changing at the same time. It's staying the same. Strategic exits are still going on. That game is alive and well. But other sort of key shifts that I've noticed, especially over the last few years, are new buyer profiles coming into the sort tech startup VC backed landscape, specifically private equity. I don't know about you, but if I think back to sort of the early stages of my founder life, I didn't know anyone that sold to PE. But these days, it's a very common outcome, which is like partially as a result of just the never ending growth of private equity as an asset class. I forget the exact number, but it's like 10 or 13 trillion or something of assets under management. It dwarfs most asset classes and scale, and that capital has to find a home somewhere. And it eventually found itself into the tech and startup worlds. It also sort of helped that especially post-Zerp. startup started to optimize for metrics like profitability and free cash flow that made them appealing targets for private equity buyers. So, you know, you have the combination of these two, these two trends that have resulted in a lot of private equity deals occurring within our world, which is, you know, it's probably a good thing. You know, as we'll often say, as a founder, You know, you probably want to be aiming for a strategic exit in terms of maximizing your personal outcome. strategic deals don't always work out. And as a result of that and as a result of other trends on the strategic side, like, for example, Linecon, the FTC being, you know, super anti, especially big technology companies doing M&A. And also, again, post-Zerp that Oliver (24:03.521) there's sort of increased scrutiny on, you know, big technology companies to focus on core business and on profitability themselves, that it became harder and harder for strategics to justify acquisitions. And so, you you do see fewer of those deals than you did before. So, you know, it's definitely good news that you have private equity buyers entering the game, albeit you need to know what that game is, it's a different game than you're playing with a strategic buyer. So that's been interesting. And then beyond that, there's this increased focus on consolidation plays. Generally, consolidation plays become more appealing in moments like we've experienced over the last few years of volatility. Post-Zerp, you just have thousands of startups. When I was at tiny, we would call venture distressed, that had hit that wall, you know, in growth and capital dried up and they were looking for a home. Some of them are great businesses, with product market fit and solid products and, and, looking for somewhere to go. So you can consolidate those. and then the other play that's been really interesting is sort of like growth buyouts or AI buyouts, which obviously, you know, we, at thunder have a really acute interest in. you know, obviously from a personal personal perspective, I love these strategies. I think that they are just incredibly compelling force multipliers for founders, you know, to drastically increase, the scale of their potential outcome through consolidation. so yeah, it's an interesting, it's an interesting time in and A, it's not all good news, you know, like multiples are certainly down. versus what we've seen in especially the heavy days of the Zerp era, but probably down and back to some sort of reversion to the mean, to sort of more realistic multiples that kind of make more sense. So it is what it is. Jason Kirby (26:20.622) You know, it's been fascinating kind of watching the private equity markets over the last several years, just, you know, to kind of throw out some stats for the audience. Private equity is about a hundred billion a year being invested, uh, back in 2000. And, know, now looking, you know, looking at, uh, 2021, 2022 is almost 2.2 trillion. That's like net new capital going into private equity firms. Um, you know, nearly a 20 X increase now. Oliver (26:45.056) Wow. Jason Kirby (26:49.326) 2022 to 2024 saw roughly a 75 % drop, 80 % drop in that new capital. So obviously that's kind of what I think founders are feeling right now. And kind of what I've picked up on is we got such a unrealistic taste of fantasy land in 2021 and that... Again, using that word anchored and anchored expectations and anchored founders of like, I'm building something that everyone's going to want to. like everyone got funded shit that should never been funded, got funded. And so now you have this, just all this talent in these no growth opportunity businesses. Like they're, not outcomes. It's like all this talent locked in to these businesses, most of the founders and their, their, you know, their best people still passionate, still having hope. Oliver (27:17.974) Yeah. Oliver (27:35.02) Mmm Jason Kirby (27:45.006) Um, but yeah, and then you're seeing a shortage of net new capital coming in and a concentration of capital going into the biggest deals and these smaller deals where companies doing millions of years and millions in revenue, but. Break even. So losing money or not profitable. I haven't really cracked the code just yet to kind of have out, know, outsized returns. They're stuck in this limbo of, you know, now what? Oliver (28:13.42) Mmm. Jason Kirby (28:14.348) They think capital raising because they still care about their business. They love hope. They still have passion and everyone tells them like, got to keep going. Failure is not an option. You got to keep grinding away. But the reality is, I see and like you're alluding to, is a consolidation play. I think we're going to see substantial consolidation either for bolt on acquisition value of like product complimentary products being added to existing larger platforms because That in today's age, it's all about distribution. And if you own the distribution, meaning you have the customer base, have hundreds, thousands, you know, customers, you have a platform for distribution, whether it's you're an influencer or, you know, you just have great sales, uh, marketing efforts. Uh, the value that you can create as a company with distribution by just bolting on and buying up. Oliver (28:47.339) Yeah. Jason Kirby (29:12.334) You know, companies, is just massive or you have a killer product. You have a ton of capital, but you're struggling on distribution, you know, buy companies that have the customers and wipe out their, you know, get rid of their tech and integrate your tech or, know, so I think there's going to be a lot of, you know, smart founders that are investing in their own corporate development strategies on the buy side, which is something that you and I are doing now. Oliver (29:13.377) Yeah. Oliver (29:24.523) Yes. Jason Kirby (29:41.218) you know, for a couple clients in terms of helping them identify buy side strategies to give them, you know, this upside potential, you know, inorganic growth as they call it growth or acquisition where, your company can go out and execute these strategies yourselves or be the consolidate E and get acquired to be, you know, bolted into those things. there's obviously all kinds of different ways those deals can be structured, but, know, that's kind of what I to, allude into now is like, Oliver (29:51.723) Yeah. Oliver (30:03.041) Yeah. Jason Kirby (30:10.062) You know, from your perspective, when you see these different types of consolidation plays or bolt-ons or platform plays, like, you know, what, what's kind of your bet? What are you seeing that, you know, is more probabilistic for the skull more tech companies, software companies, when they think about getting bought by private equity or PE or independent sponsors or strategic. Like kind of what do you see as the potential. on the horizon for these types of deal structures. Oliver (30:41.311) Yeah, so, you know, first of all, it is a tragedy that there are so many, you know, startups, especially venture backed ones that have hit that wall. You know, it's a sort of classic Charlie Munger, show me the incentives and I'll show you the outcome. A lot of startups were incentivized to go after growth at all costs. And when capital was abundant and flowing freely, and then the capital dried up, and suddenly it's like, you know, the game has changed and your investors suddenly expect you to be extremely profitable rather than growing really rapidly. And those are just totally different games. And some are able to adapt and optimize for profitability and therefore have optionality going forward. But many are not set up to be able to do that. They don't know that game. They never played it. So they've hit a wall. luckily, there are options for companies in that boat. Jason Kirby (31:13.961) You Oliver (31:35.307) There are strategics that are looking to integrate them for aforementioned reasons. And there are companies consolidating that can, as you say, be distribution channels for startups that typically lack that. It's distribution that's kind of hitting their growth. So I think from a seller perspective, thank God for those options because otherwise, frankly, you don't have a lot of options. take that deal as soon as possible and yeah, have realistic expectations about what the outcome is. It's that or decline into shutting down, which is happening, you know, to sadly thousands of startups at this moment. And yeah, if you're a buyer, it presents an opportunity. You know, it's an incredible opportunity to engage in, yeah, either just straight consolidation of competitors that you can integrate into your company because You fundamentally have a foundation which works. You you figured out the game of building a sustainable business that doesn't require endless capital to prop it up. You can absorb other companies that have fallen foul of the growth at all costs and haven't been able to achieve distribution. You can integrate them and acquire revenue, customers, talent, tech, et cetera, et cetera. Or you... in a strategy which of course we're deploying within Thunder, you could look to deploy something like a growth buyout or an AI buyout where you yourself would be the platform. You have a technology company which acts as the platform. In the traditional sort of roll-up version of a consolidation play, the platform would typically be like a big scale, very profitable. structurally sound business in the context of a growth buyout or an AI buyout. You may not have all of those attributes, but you have a solid business and you have a technology which you can deploy into perhaps more traditional businesses where you'll see an uplift by deploying technology to potentially reduce OPEX, meaning you need less people to do the work within the company or to Oliver (34:01.727) provide new revenue streams through new products and services that come through technology. Jason Kirby (34:07.662) And one thing I want to add to that, which, you know, we've been exposing founders to, and it's, been quite an eye opener because some of these companies, like one of our clients, like great product, killer product, but, you know, the category she in isn't sexy anymore for venture. It's just fallen out of favor. It doesn't matter how good she is. doesn't matter how good the product is. doesn't matter how good the sales are. There's just no capital for continuing to fuel the venture narrative of that particular business. Oliver (34:36.106) Yeah. Jason Kirby (34:37.004) But what makes it interesting is going out and acquiring businesses with her technology and leveraging that actually makes it easier to raise capital because that's a playbook. Private equity and private credit are very familiar with, know, acquisition, acquisition financing. it's very common and being able to secure, you know, anywhere between like one to three X, whatever the cash flows are of the target company. Oliver (34:53.728) Yep. Jason Kirby (35:05.774) Uh, is, very attainable and that it can help fund future acquisitions. And that's the private equity playbook that has made trillions of dollars in returns over the last few decades of these. Kind of what we call like multiple arbitrage, you know, strategies and fun education for, for those listening and, you know, Oliver, I'd love you to take on this as well. Like what multiple arbitrage comes down to is like, let's just say you're a $10 million a year business. Oliver (35:22.783) Mm-hmm. Jason Kirby (35:34.35) With $1 million EBITDA, like your value multiple, your EBITDA multiple would be in like the five to 10 X depending on your business, whatever it might be. Like multiple is not so much relevant here outside of what it does when you hit certain thresholds. So if you are trying to go from 1 million EBITDA to 5 million EBITDA, you know, you can do it organically, but that's five X, you know, grow. That's not easy to do. But if you buy another business that's got half a million or a million or 2 million, you know, EBITDA, whatever it might be. You're buying them at the same multiple that you're worth today. But when you over, uh, when you surpass like the $5 million, uh, EBITDA, um, line item, multiples actually increased by anywhere between 20 to 50%. So you're the value of what you bought that company for today. Let's just say it was a, you know, three X EBITDA multiple that you bought it for. Um, but when you scale the company, the value of that entity, whether it grows or doesn't grow. Oliver (36:19.818) Yeah. Jason Kirby (36:34.1) actually is just inherently because it's bigger and more in that case validated and safer. And there's bigger check writers who need to deploy a lot more capital. They pay a higher premium. And so if you gobble up a couple of companies to get past like the next milestone in terms of a multiple jump, that's absolutely like a massive value creation where you're able to buy a company like say a million dollar EBITDA, you're able to buy it for three. Oliver (36:45.46) Yes. Jason Kirby (37:02.252) And then you have the finance, some of it's not really cat. Like there's all these really cool strategies that you can implement that are not that wild of an idea that there's tons of playbooks out there that people have already done it. it's just a matter of, does it make sense for your business? And so, you know, so I'm curious to get your thoughts on like what you're seeing in the market for them from that perspective. Oliver (37:14.432) Yeah. Oliver (37:18.132) Yeah Oliver (37:22.557) Yes. So like, first of all, it absolutely flips the script. know, like if you've hit a bit of a wall, you know, like the business is solid, it's growing, but it doesn't have sort of venture characteristics anymore. And again, we see this often solid business product market fit significant revenue, but like, it's not going to be a unicorn and the VCs of record. Jason Kirby (37:44.238) It's a venture orphan. Oliver (37:45.643) Exactly. It's a venture orphan. you know, that doesn't have to mean it's a bad path or bad outcome. By engaging in a sort of buyout strategy, you completely change the narrative. You also allow yourself to open up to different sorts of investors, be it, know, equity investors that might be private equity or family offices or indeed private credit. And It's, it's just infinitely easier to buy revenue than to kind of grow organically, you know, like having done both, you know, buying revenue is just so much easier. So easy. You're playing the game on easy mode when you're buying companies versus like, okay, we're going to double down and invest more into sales or marketing. Like that is not an exact science. It's so hard to increase top line revenue through, you know, doing more sales and marketing. So it's an easier game and there are incredible deals to be done at the moment. Multiples are, as we've discussed, pretty low versus historical averages. So you can flip the script, open up channels of investment. You have a ton of deal flow that you can access at like stupidly discounted rates. And for founders that are you know, where this makes sense, because it doesn't always make sense, you know, but where it does, it can, I mean, it can change the potential outcome by orders of magnitude, you know, that the example that you referenced, I think in that scenario, we model out that it will make like a 50 to 70 X difference to their personal outcome on exit. You know, that's not a an incremental change in outcome. That's like a drastically different outcome. Jason Kirby (39:42.69) Dude. Oliver (39:42.952) And it's very much doable. It's all about execution. It's a fairly low risk strategy versus basically any other strategy of growth. Jason Kirby (39:52.174) But what do you, when a founder comes to you and says like, sounds cool, but where do I start? How do I do this? I don't know anything about acquiring a company, let alone being acquired. Oliver (40:03.243) Yes, I mean, and that is the typical scenario. You don't know what you don't know. We have learned this through experience and having been part of a multitude of deals on the buy and sell side, consolidation plays, roll ups, holding companies, etc. When I was in my first phase of building a company in my 20s, like I had no idea that any of this stuff existed and I wouldn't have been able to initiate it. It would have been a disaster. And so You know, a learn, you know, do what you can to learn about, you know, these alternate strategies. And we're lucky to live in a world where there's abundant information, be it podcasts or articles or AI itself that, you can use to, to, learn about this sort of stuff. and, and, you know, take guidance from partners, you know, of course, I'm biased to think that investment banks add a lot of value in this context. you know, but, but I believe that they do. And, you know, for example, how we work with founding teams to implement this strategy really varies depending on who they are. You know, some of them are not really set up in a way to be able to initiate such a strategy internally. They're set up as a product business. They don't have, you know, vast finance team or M&A resources internally. And in those situations, we kind of act as their external core dev team, their M&A department. And we initiate a lot of the strategy ourselves with others where they are set up to initiate a consolidation play. They've hired an M&A team. They have internal resources. We still add into that in a number of different ways, whether it's capital raising or deal sourcing or deal structuring. But it's more of a light touch kind of a la carte as you go. sort of set up. Jason Kirby (42:01.088) Yeah, outsourced CorpDev as a service, as effectively what it is. But I want to, you know, something you touched on, I think would be valuable for the audience to understand when it comes to, you know, who to listen to and how to ask questions. know, chat-to-be-tee is great. You know, it's a, you know, a banker, an advisor, you know, anyone and everyone you want it to be. But when comes about understanding the nuance of your business. Oliver (42:06.099) Yeah. Jason Kirby (42:30.958) uh, having chemistry with the person giving you advice and understanding incentive alignment. Yeah. talked about try the monger, like show me the incentive. show you the outcome. Like that's so important. Like when, um, and I always preface this with, with founders that have raised venture and they're now a venture orphan. They're often told, you know, the VCs on their board, um, that are now harder to reach, harder and engage, you know, that have kind of distanced themselves because you know, you're not the winner of the portfolio anymore. They got to prioritize their keywords, other things. That's just their incentive. Oliver (42:35.475) Mm-hmm. Oliver (42:57.247) Yeah. Jason Kirby (43:00.532) Or you have the VC that really loves you and cares about you, but there's nothing that they can truly do for you or they don't get their hands dirty for you. And I always just say like, of that, the advice brought to the table from those situations in the sense that the person that wants you to preserve and not die, that's just throw away advice because they don't know what else to say. Oliver (43:26.814) Yeah. Jason Kirby (43:26.826) And they rather not have you go zero. They rather not have a zero on their books and maybe something magical happens like conserve cash, be profitable, but then you're, what do you have to offer as a business? Like who's going to acquire you? What's going to create liquidity? What does that mean to you as a founder? What's the outcome that you can derive that's equal to you? Are you able to clear your pref stack? Can you not clear your pref stack? you know, we've had investors come to us and say, Hey, sell one of my pork goes for me. And we sit down with his pork goes and they're like, Hey, Oliver (43:41.896) Yeah. Yeah. Jason Kirby (43:54.402) Fun fact, you're not going to make a dime if you sell today. Like you have to do something different, and you have to grind for years to create an outcome. That's only just going to pay off your investors. So like what's really on the table for these founders and having an honest conversation and getting the honest feedback of what's the actual market look like, what could be done, what can't be done. and what are all the options because most, most VCs either just Oliver (44:06.398) Yep. Yep. Jason Kirby (44:23.886) give you throwaway advice because either one, don't know or haven't done the homework or two, their incentive is a billionaire bust. Like if you're not a unicorn, you're kind of worthless to them. know, like getting a 1X, 2X return or something in, you anything less than like 3X return doesn't move the needle for them. They make 40 bets and you know, they're returning, you know, it's like that's more of an accounting problem for them to return the capital to investors with a 1X return. Oliver (44:30.985) Mmm. Oliver (44:34.567) Yeah, yeah. Oliver (44:45.246) Yeah. Oliver (44:52.189) Yes. Jason Kirby (44:52.718) Uh, then it is actually meaningful to them. So those incentive structures can be very confusing for founders because founders trust them. Like, you're on the board. You trusted me. Like I want to trust you, but you know, go ask a couple people, go ask them exited founders who have been in the, you know, you're, you have been in your shoes, you know, expand your network and ask at least three people from completely different backgrounds. And ideally people that have no skin in the game. You know, don't just ask your investors. Oliver (45:00.616) Yeah. Oliver (45:07.195) Absolutely. Oliver (45:17.085) Mm-hmm. Yes. Jason Kirby (45:20.554) Ask people in your industry, ask people that have sold companies before, done transactions before, and get that outside perspective. Because without that, there's just too much inherent bias in the feedback that a founder would receive otherwise. Oliver (45:33.865) Totally agree. And you know, this is not to, you know, to shit on VCs. There's a tendency of people to do such a thing. you know, I'm glad VC exists as an asset class. It's been an incredible force multiplier for founders and, you know, thank God it exists. But yeah, of course, you know, they're not incentivized to help founders achieve meaningful exits for the founder, but for the VC, it's like, you know, irrelevant. So they're not incentivized. And of course it varies, like some VCs will bend over backwards to help founders to achieve those outcomes if they've recognized that it's that or the business trundles towards zero. There are a lot of good VCs that will help to achieve exits. But there are a lot that either will be a barrier to that or simply won't help at all or will potentially give bad advice. Another thing which I often encounter, not just with VCs, but with a lot of people is like, They don't really understand that game fully. They don't really understand the M&A game. They haven't experienced it enough to be able to provide good advice. So, you know, do try and learn from others. You know, learn from podcasts, learn from books, absorb as much of, know, what other people have been through so that you don't have to, you know, be a victim of the same pitfalls. And then, yeah, take advice from people that are trusted, who have experience, and where they're incentivized to generate outcomes that are aligned with the founder's interests. And I would absolutely count us as being part of that profile and bracket. Oliver (47:26.889) think you're on mute. Yeah Jason Kirby (47:30.414) Construction next door. You know, one thing I wanted to do before we wrapped up was just kind of spend a little bit time on deal structures. We talked a little bit about the concerns around earn outs and, you know, what to try to avoid them if you can, but what are some other deal structures when it comes to M&A, you know, and think buy side or sell side. What, what, what's some structures that you've seen that Oliver (47:39.282) Yeah. Jason Kirby (47:59.278) You know, some clean structures and maybe some messy structures and kind of what's the, you know, difference between them. Oliver (48:05.032) Yeah, so yeah, we've talked about earnouts. I think that that's an important point. Yeah, look, I've been on both sides of the table as a buyer and a seller, and as an advisor. And yeah, it does often come down to incentives. You know, show me the incentives and I'll show you the outcome is just like an adage, which we should remind ourselves every single day. in the context of business because often we sadly are not aligning incentives in the context of M&A. Beyond that, minimal or no earn-out exposure I think is super key. Another thing is clear commitment to working capital. If you're doing a strategic deal or if it's a financial buyer like a P and part of that deal is based on you achieving growth, then you need commitments to access capital to allow you to achieve that. When it's your standalone business, you get to make those calls, you get to allocate capital as you see fit. As soon as you sort hand over the keys to a buyer, your decision making is diminished drastically. And as I was kind of saying at the start, I think a lot of... Exits fail because founders don't have enough control to define the inputs. And so the output doesn't get doesn't get delivered. And yeah, these are all things that we sort of, you know, specifically will try and help founders to navigate when they're going through an M&A process. Access to capital, you know, aligning incentives around, if not earnouts, then retention bonuses. access to or sort of distribution of equity over a timeline which makes sense from the buyer's perspective to ensure that the founders stick around for the long term and don't just disappear after the deal is signed. But from a seller perspective where the buyer is incentivizing them to stick around through both equity and cash. So, Oliver (50:28.072) Good deals come from good incentives across all of these areas. yeah, having experienced a lot of the pitfalls myself personally, these are the things which, whether it's in the context of thunder or businesses that I advise or have invested into, these are the things that I'm trying to advise founders around when they're structuring deals. Jason Kirby (50:52.846) Yeah, I think it's something that, um, founders just need to be educated on all the different paths that exist with this, what they're coming to market offering and time can change those for better or for worse, you know, depending on the state of the business. And it's just something that I think founders need to spend more time understanding, uh, how to play out their options. Like something that we do often for a lot of our clients is. uh, what's known as a capital strategy assessment. It's, it's a deep dive understanding of their business, the market, uh, forces that might be impacting their, their business specifically and kind of what investor appetite or buyer appetite might look like so that we can architect like, Hey, if you do these, you know, five things over the next year, this will be the potential outcome versus if you just go to market as is today. And that might be a Oliver (51:49.426) Mm-hmm. Jason Kirby (51:51.278) 10 % difference, or it could be a three X difference. Uh, and that advice just gives founders clarity on what they should be focused on. You know, because most founders come to us like grow at all costs, you know, raise the next round. But I was like, Hey, if you're doing like 10, 15 million a year in revenue and you're break even because you don't want to pay taxes and you want to fund a little on the growth. Sure. And you can continue to do that, but you're running at a high risk in terms of. a bad event happens, you know, and something unpredictable happens and you're out begging for cash in your worst state versus, you know, maybe a slow down growth, you know, knowing it depends on your category, where you're at and what the market forces are, but that's what we do. We help kind of bring that education to founders and help them identify. It's like, well, Hey, if you actually harvest now and you sell a portion to private equity and you take a bit of, you know, skin off, take some, Oliver (52:27.559) Yeah. Jason Kirby (52:50.19) I don't know what I'm playing. Take some, take some chips off the table. There we go. Uh, if you take some chips off the table and you, you, it just changes so many different things for a founder or it's like, Hey, you're not attractive right now at all. But if you do these five things, you know, you will become attractive and here's how you do these five things. And here's what these will, you know, have an impact on. And if they go up or down, how they impact your desired outcome, like, all right, you, your founder, your dead set on. You know, making 20, 25 million, that's like your number and you got to sell for a hundred million. It's like, well, maybe you're not even close to that right now. It's like, are the milestones you're going to have to hit and who are the prospective buyers? You know, just had a call yesterday with the founder and like, Hey, have you started talking to strategic? So you're at a scale now where you should be on their radar. They're not going to transact now. You're too small for them to buy or, you know, invest in you now. But if you double again, which. Oliver (53:29.306) Yeah. Oliver (53:33.735) Yeah. Jason Kirby (53:48.462) that particular founder has been doing. If you double again, you're now in their sweet spot where they need to know who you are, what your background is, what your company's capable of, where you're going. And that's going be the sweetheart deal. You started those conversations. And so that's something we often tell founders is like, don't wait until you want to sell to start building relationships, especially with strategic. Private equity can be transactional. You don't have to get buddies with them right away. It's helpful, especially if they're like industry Oliver (54:01.554) Yeah. Yeah. Oliver (54:12.071) Yes. Jason Kirby (54:17.773) you leaders and they have an influence in the industry that you're in. But if it's just a regular financial buyer, private equity, maybe not too big of a deal. But those strategic relationships are super valuable to start as early as possible, be on the radar, build the trust with either the product owner, like the, you the product leads or the executives that are in the category of the business in addition to CorpDev. And that's how we ended up selling to Walmart because we had those relationships. Oliver (54:27.334) Yeah. Oliver (54:45.767) Yeah. Jason Kirby (54:46.858) and started those relationships early as possible, technically with the intent to sell to them. They didn't know that, but we did. Oliver (54:51.303) Yes. Yeah, I totally agree. Again, there's this sort of like mindset, which is very prevalent and somewhat I think it comes from from VCs who of course are incentivized to have founders thinking only about this massive bonanza exit at some point in the future that founders are sort of laser focused on that. And then sacrificing thinking about an exit and planning for an exit, which my point of view is you maybe not from day one. I don't think there's anything wrong thinking about it from day one and sort of planning for and thinking about what that exit could look like and making moves so that you're optimizing the business towards characteristics that will be appealing to achieve that outcome. I don't think that there's any downside in doing that. And again, sort of, you know, I wish that I had known about, you know, or had been speaking to people that helped me to go through a capital strategy assessment when I was building businesses in the past, because it's just an incredibly illuminating process to go through. And, you know, I think that for us, it's just like, we just love the game. Like, it's such a joy to speak to founders about their business and sort of figure out you know what the levers are, you know why they've hit certain walls or what the threats are to sort of dive deep into the sector and the industry and figure out you know what the steps are to get to that sort of outcome that they want to achieve. For us it's just like you know it's a passion, we've been through it many many times and again it kind of goes back to founders not you know they don't know what they don't know and unfortunately I think most boards Oliver (56:42.713) are so badly constructed that they don't help founders to tackle any of this kind of stuff. In fact, they're often a hindrance to them having these conversations and making things happen, which will allow them to maximize an outcome. Maybe it's not going to be billions of dollars, but it could be tens to hundreds of millions. And unfortunately, boards are not really set up to achieve that. So we kind of operate as an external neutral party that is very much incentivized around getting the best possible outcome for the founders. Jason Kirby (57:18.008) You know, I'm so glad you said this is obviously a very sensitive subject for me because I lost seven figures due to my board, blowing up a deal before we sold the to Walmart and all due to their degree and misunderstanding of the marker market dynamics and their incentive. Their incentive was billionaire bust. And that was not in the cards for us. Like I knew it. I go finder knew it. Like we were not selling, we were never going to get to a billion dollars because our competitors were moving too fast. Our competitors were Nvidia. Oliver (57:36.122) Yeah. Oliver (57:40.614) Yep. Jason Kirby (57:47.372) Microsoft, Google. It's like, we had to sell with some of the giant war chest to have a shot and Samsung tried to buy us. and the day that we didn't get to sell because, our board basically delayed the deal by three weeks asking for more money, which went behind our back. Did not discuss that with us just went straight to the, you know, Samsung corp dab and said, we, we've been hitting all our numbers. We deserve more. Oliver (57:48.145) Right. Jason Kirby (58:16.29) And they came back and spent three weeks and came back with the answer of no. And, and then we were delayed three weeks and guess what happened in those three weeks? The CEO of Samsung went to prison for fraud or no corruption. And, and then our deal died on the vine, the day of closing, because of our board and. Fortunately our board then kind of backed down quite a bit, but they forced a crappy banker on us that we didn't like. They didn't offer any value. Oliver (58:21.085) Yeah. Oliver (58:28.293) Yes. Jason Kirby (58:44.782) couldn't go and chop around. was just, you know, not every board's this way, but in cases, uh, we were, we struggle this often with founders where it's like, they want to work with us. They, they, they like our advice, but the board would be like, Oh, go, you know, like you should do it on your own. We shouldn't give up any fees or blah, blah, blah, blah. Uh, you know, you're the founder, you should be doing this yourself. We don't need no banker. And like, I did it myself or, know, someone I know did it themselves. And it's like, okay, that's nice of you to say, but as a Oliver (58:48.923) No. Oliver (59:00.687) Yup. Yep. Oliver (59:13.489) Yeah. Jason Kirby (59:14.35) founder and CEO running a process is a full-time job. And on top of that, you have to build your business. You have to grow your business. Cause if your business starts falling flat, then so do your prospects of an outcome that you want. So it's better to kind of bring in outside help that takes on the kind of the grunt work that's required in a lot of these transactions. It's just a lot of shit, a lot of back and forth, a lot of communication. it just takes forever. And so. Oliver (59:18.662) Yeah. Oliver (59:28.391) precise. Oliver (59:38.735) Yep. Yep. Jason Kirby (59:42.862) Outsourcing that knowing that you have a partner you trust to go out and execute while you maintain your objectives. If you hold up your end of the deal of building a great company and continuing the trajectory that you're on, makes your job 10 times easier to go get a transaction done. Whereas you do it by yourself, everything's 10 times harder. Oliver (59:51.91) Yeah. Oliver (59:55.278) Absolutely. Absolutely, absolutely. you know, there's another topic, which is probably a topic for another day, because it's podcast in itself is like, a lot of these issues are downstream of the initial capital strategy of raising who you raise from it, how much what sort of governance rights you gave away that initial founding point, you know, like, so many founders, and again, I've been fouled to this, I've fallen foul to this myself in the past, signed term sheets, which then results in lot of downstream problems of construction of the board, decision making in government processes. You basically lose control and all of these things become infinitely harder when you don't have control or when you have bad guidance and governance. Jason Kirby (01:00:44.504) You I think that's a, that's a good follow-up point to schedule another podcast and dive deeper on just the architecture of your cap table. I think that would be a really good topic of just, you know, unfortunately, some of your findings you already, you're already in the bed, know, you're already in the bed you made and you have to deal with those, those situations. And then it's just more of a psychological, you know, relationship building and kind of nurturing certain things to kind of navigate the shit sandwich you might already be in. Oliver (01:00:53.894) Yeah. Oliver (01:01:02.619) Yep. Oliver (01:01:13.328) Yeah. Jason Kirby (01:01:13.634) But in early days, like, you know, truly think about your partner, truly think about incentive alignment and what happens if things go wrong. Cause everyone thinks about what happens if things go right, but you know, statistically speaking, they will go wrong. So, you know, who do you want in your corner supporting you? So I think that's a great lead into a new, new episode with the Oliver. So appreciate that. well, obviously we're all very biased here, Oliver, you and I, you. Oliver (01:01:20.208) Yeah. Oliver (01:01:25.35) Yes. Oliver (01:01:34.298) Agreed. Jason Kirby (01:01:40.962) coming here representing Thunder and what we do and helping support founders and transactions. I got to go with the shameless plug. If you're a founder struggling with the questions and issues that we've brought up, reach out. We're open to have a chat, understand what's going on with your business and see what options might exist for you and how to navigate those options. So just reach out to us at thunder.vc. We're happy to support you. Oliver, it's been great having you on the show. For listeners, new listeners, don't forget to subscribe. Give us a like, let us know that this is the kind of content you want to see from us. It's a little bit different than our typical interview. So I was curious to get the feedback from the community. us a comment. But thank you, Oliver. I will see you at the office. Oliver (01:02:28.743) Thank you. Until next time.